Immuron Ltd — Annual Report 2012

Aug 30, 2012

Immuron Limited. ABN 80 063 114 045

ASX Preliminary final report – 30 June 2012

Appendix 4E - Lodged with the ASX under Listing Rule 4.3A
Contents
Preliminary Statement of Comprehensive Income	2
Preliminary Balance Sheet	3
Preliminary Statement of Changes in Equity	4
Preliminary Statement of Cash Flows	5
Notes to Preliminary Financial Statements	6
Other Appendix 4E Information	13

1

Immuron Limited Preliminary Statement of Comprehensive Income For the year ended 30 June 2012

Notes Revenue from continuing operations 2 Other income 3 Other gains /(losses) 4 Raw materials & consumables used Employee and consultants costs 5 Depreciation and amortisation 5 Research and commercialisation 5 Non – Executive Directors' fees Product marketing & export development Shareholder relations Finance costs 5 Corporate and administrative 5 Loss before income tax Income tax benefit Loss for year attributable to members of Immuron Limited Total comprehensive loss for year Loss per share attributable to the ordinary equity holders of the company Basic earnings (loss) per share 10 Diluted earnings (loss) per share 10 Net Tangible Asset backing per Ordinary Share	2012 $ 463,261 734,723 367,589 (363,717) (1,039,235) (72,566) (850,625) (193,600) (145,339) (144,967) (111,111) (941,933) (2,297,520) - (2,297,520) (2,297,520) Cents (0.67) (0.67) 0.2	2011 $ 297,891 213,899 - (216,641) (985,793) (21,327) (1,143,187) (198,926) (104,688) (69,816) (3,735) (362,856)
		(2,595,179) -
		(2,595,179)
		(2,595,179)
		Cents (0.82) (0.82) 0.01

The above unaudited preliminary Statement of Comprehensive Income should be read in conjunction with the accompanying Notes.

2

Immuron Limited Preliminary Balance Sheet As at 30 June 2012

Notes ASSETS Current Assets Cash & cash equivalents Trade & other receivables Inventories Other assets Total Current Assets Non-Current Assets Property, plant and equipment Intangible assets 7 Investments Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade & other payables Financial liabilities 8 Provisions Total Current Liabilities Non-Current Liabilities Financial liabilities 8 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity 9 Reserves 9 Accumulated losses 9 TOTAL EQUITY	2012 $ 1,443,928 204,752 214,400 356,131 2,219,211 18,457 1,400,587 31 1,419,075 3,638,286 947,545 81,186 - 1,028,731 559,574 559,574 1,588,305 2,049,981 30,024,787 907,059 (28,881,865) 2,049,981	2011 $ 750,814 33,594 290,900 96,127
		1,171,435
		28,162 1,460,587 31
		1,488,780
		2,660,215
		924,836 - 3,000
		927,836
		-
		-
		927,836
		1,732,379
		27,721,517 595,207 (26,584,345)
		1,732,379

The above unaudited preliminary Balance Sheet should be read in conjunction with the accompanying Notes.

3

Immuron Limited Preliminary Statement of Changes in Equity For the year ended 30 June, 2012

Notes Balance 30 June 2010 Total comprehensive loss for year Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 9 Employee share options – value of employee services 9 Balance 30 June 2011 Total comprehensive loss for year Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs 9 Share options issued to employees and consultants - value of services provided 9 Balance 30 June 2012		Contributed equity 26,964,091 - 757,426 - 27,721,517 - 2,303,270 - 30,024,787	Reserves 388,366 - 200,613 6,228 595,207 - 171,009 140,843 907,059		Accumulated losses (23,989,166) (2,595,179) - - (26,584,345) (2,297,520) - - (28,881,865)	Total 3,363,291 (2,595,179) 958,039 6,228
						1,732,379 (2,297,520) 2,474,279 140,843
						2,049,981

The above unaudited Preliminary Statement of Changes in Equity should be read in conjunction with the accompanying Notes.

4

Immuron Limited Preliminary Statement of Cash Flows For the year ended 30 June 2012

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid R& D tax offset receipt Net Cash (outflow) from Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment Net Cash inflow/(outflow) from Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares & other equities Share placement cost Funds received from convertible debenture borrowings Net Cash inflow from Financing Activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year	2012 Inflow / (Outflow) $ 802,970 (3,235,973) (2,433,003) 14,249 (43,905) - (2,462,659) (2,861) (2,861) 2,300,252 (90,996) 949,378 3,158,634 693,114 750,814 1,443,928	2011 Inflow / (Outflow) $ 386,215 (2,618,421)
		(2,232,206) 52,606 (3,735) 213,899
		(1,969,436)
		(18,197)
		(18,197)
		908,549 (52,326) -
		856,223
		(1,131,410) 1,882,224
		750,814

The above unaudited Preliminary Statement of Cash Flows should be read in conjunction with the accompanying Notes.

5

Immuron Limited Notes to Preliminary Financial Statements For the year ended 30 June 2012

This preliminary financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2011 and any public announcements made by Immuron Limited during the year in accordance with the continuous disclosure requirements of the Corporations Act 2001.

Note 1. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the preliminary final report are consistent with those applied in the 30 June 2011 financial report. These policies have been consistently applied to all the years presented, unless otherwise stated. The Company reviewed the estimated useful life of its intellectual property from an indefinite life to a finite life which resulted in a change in accounting estimates. The effect of this change is shown in note 7 to the preliminary financial statements.

(a) Basis of preparation

This preliminary final report for the year ended 30 June 2012 has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

(b) Going concern

At 30 June 2012, the Company’s cash and cash equivalents amounted to $1,443,928 (2011:$750,814) and for the year ended 30 June 2012, the Company experienced an operating loss of $2,297,520 (2011: $2,595,179) and a net cash outflow of $2,462,659 (2011: $1,969,436) from operating activities and expenses associated with research and commercialisation programs.

During the 2012 financial year the Company entered into a Debenture Subscription Agreement with Paladin Labs Inc. for the issue of up to $CAD 1.5 million convertible debentures of which $CAD1.0 million was drawn down at 30 June 2012. The debentures are repayable by 23 December 2014 or are convertible at the option of the holder into fully paid ordinary shares of the Company at any time prior to maturity.

For the 2013 financial year the Company has budgeted for operating cash outflows to exceed operating cash inflows as it continues its global commercialisation of Travelan and its various research programs. Although the Company is projecting losses and a net cash outflow from operations for the 2013 financial year, the Directors have taken a number of steps to reduce the level of recurring expenses whilst it continues to seek additional licensing arrangements for its Travelan and other products. Ultimately the ability of the Company to fund the expansion of the Travelan markets, and continue with its current research programs, will depend upon its current commercialisation program and its ability to raise additional capital from investors as required.

Given the difficulty in predicting the timing and quantum of income from the commercialisation of its products and technology, the inherent uncertainties in raising funds from investors, and adherence to cash flow budgets, there is significant uncertainty whether the Company will be able to continue as a going concern and realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

However, the Directors are confident that the Company's planned initiatives will be successfully achieved during the next twelve months and provide adequate access to financial resources. The Directors are also confident of the company’s ability to raise further capital if the need arises.

Accordingly, the Directors have prepared the financial statements on a going concern basis. As such, the financial statements do not include any adjustments as to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the entity not continue as a going concern.

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Note 2. Revenue

From continuing operations Sales revenue Sale of goods Other revenue Interest Rental and other income Note 3. Other income License fees received R & D tax offset receipt		2012 $ 449,012 14,249 - 463,261 480,215 254,508 734,723	2011 $ 213,951 52,606 31,334 297,891 - 213,899 213,899

The revenue received from the R & D tax offset has been disclosed as other income. The comparative amount for the 2011 year has been restated as it was previously disclosed as an income tax benefit in the statement of comprehensive income.

Note 4 Other gains/ (losses)

Fair value gain on convertible debenture derivative (refer note 8) Note 5 Expenses The loss for the year includes the following expenses items: Employee and consultants costs Defined contribution superannuation expense Other employment related expenses Total employee and consultants costs Research and commercialisation Patent registration costs Research projects in – Australia - Israel International regulatory registrations NASH FDA IND application Other research and commercialisation costs Total research and commercialisation expenses Corporate and administrative Audit and taxation services Legal services Corporate and product development consultants Shares and options issued to external consultants Net foreign exchange losses (gains) Rental expense relating to operating leases Other corporate costs Total corporate and administrative expenses		367,589 9,406 1,029,829 1,039,235 294,251 56,119 151,736 60,300 191,964 96,255 850,625 107,431 152,026 324,233 130,713 21,415 43,442 162,673 941,933		-
				12,468 973,325
				985,793
				198,103 94,226 536,121 - 279,875 34,862
				1,143,187
				91,344 15,022 132,679 6,600 (22,527) 39,844 99,894
				362,856

7

Depreciation and amortisation Depreciation of plant, equipment and furnishings Amortisation of intellectual property Loss on disposal of plant and office equipment Finance costs Interest paid/payable on financial liabilities and other payables Exchange losses on foreign currency borrowings	12,566 60,000 - 72,566 110,592 519 111,111	19,847 - 1,480
		21,327
		3,735 -
		3,735

Note 6.

Segment Information

(a) Description of segments

Management has determined that the business segments of research, development and commercialisation (R & D) and hyperimmune products are the main business segments used for internal reporting purposes to the Management Executive Team. Other items of income and expense not directly attributable to those two segments are disclosed as a corporate cost segment. Income from license fees is classified as income from commercialisation activities and is included in the R & D segment.

(b) Segment information provided to the Management Executive Team

2012 Segment revenue and other income Revenue from external customers License fees R & D tax offset receipt Interest revenue Other gains/(losses) Total segment revenue and other income Adjusted EBITDA (loss) Depreciation expense Amortisation Interest expense Total segment assets Total assets includes: Investments in associates Additions to non-current assets Total segment liabilities 2011 Segment revenue and other incomes Revenue from external customers R & D tax offset receipt Interest revenue Total segment revenue and other income Adjusted EBITDA (loss)	R & D $ Hyper Immune Products $ Corporate $ Total $
	449,012 - 449,012 480,215 - - 480,215 254,508 - - 254,508 - - 14,249 14,249 367,589 367,589
	734,723 449,012 381,838 1,565,573
	(777,761) 85,295 (1,662,372) (2,354,838)
	- - 12,566 12,566 60,000 - - 60,000 - - 111,111 111,111 1,674,597 456,620 1,507,069 3,638,286
	- - 30 30 - - 2,861 2,861
	366,840 149,367 1,072,098 1,588,305
	- 213,951 31,334 245,285 213,899 - - 213,899 - - 52,606 52,606
	213,899 213,951 83,940 511,790
	(1,730,622) (2,690) (883,183) (2,616,495)

8

Depreciation expense Loss on disposal of fixed assets Interest expense Total segment assets Total assets includes: Investments in associates Additions to non-current assets Total segment liabilities	- 886 18,961 19,847 - - 1,480 1,480 - - 3,735 3,735 1,461,920 361,408 836,887 2,660,215
	- - 30 30 - - 18,198 18,198
	516,660 88,074 323,102 927,836

(c) Other segment information

The Company is domiciled in Australia. The revenues and license fees from external customers were derived as follows:

Within Australia Outside Australia	2012 $ 449,012 480,215 929,227	2011 $ 245,285 -
		245,285

(d) Adjusted EBITDA

A reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA) to net loss for the financial year from continuing operations is as follows:

Adjusted EIBTDA ( loss) Interest revenue Finance costs Depreciation and amortisation Share option costs Unrealised financial instruments gain Loss for year before income tax	(2,354,838) 14,249 (111,111) (72,566) (140,843) 367,589 (2,297,520)	(2,616,495) 52,606 (3,735) (21,327) (6,228) -
		(2,595,179)

Note 7. Intangible assets

Intellectual property at cost Amortisation charge	1,460,587 (60,000) 1,400,587	1,460,587 -
		1,460,587

The intellectual property was acquired from Hadasit Medical Research Services and Development Limited the consideration for which was the issue of 56,484,023 fully paid shares. During the year the estimated useful life of the intellectual property was reviewed and its estimated life changed from an indefinite life to a finite life of two years. The net effect of that change in the current financial year was to increase the depreciation and amortisation expense by $60,000. Assuming that the asset is held to the end of its currently assessed useful life, the amortisation charge for future years will be increased by the following amounts:

Year ended 30 June 2013 $720,000 Year ended 30 June 2014 $680,587 $1,400,587

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Note 8. Financial liabilities

Secured Convertible debenture Current liability – value of convertible debenture derivative Non-current liability – host debt borrowings Total secured financial liabilities	2012 $ 81,186 559,574 $ 640,760	2011 $
		-

The Company entered into a Debenture Subscription Agreement on 23 December 2011 for the issue of senior secured convertible interest bearing debentures up to a value of $1.5 million Canadian Dollars (CAD). As at the reporting date the Company has drawn down CAD1million on 17 January 2012. The balance of CAD 500,000 can be drawn down, if required, at any time before 23 June 2013.

The maturity date for repayment of the borrowings, or the conversion into equity, is no later than 23 December 2014 for both the initial drawn down of CAD 1 million and for the subsequent draw down of CAD500,000, if that drawdown is made. Interest is payable on the borrowings at a fixed rate of 10% per annum.

T he holder of the convertible debenture has the right to convert the borrowings into equity at any time prior to the maturity date of 23 December 2014. The debenture agreement also allows for an automatic conversion if the capitalised value of the Company exceeds $AUD100 million prior to the maturity date. The conversion price is AUD 4.73 cents.

The convertible debenture and derivative have been accounted for in accordance with AASB 132: Financial Instruments, Presentation and AASB 139: Financial Instruments, Recognition and Measurement. The derivative on the convertible bond is carried at fair value. The movement in fair value from inception to year end resulted in an unrealised gain of $367,589 which has been taken direct to the profit and loss as income from other gains (refer note 4).

Based on the face value of the liability outstanding at 30 June 2012 AUD 960,522 (CAD 1.0 M), approximately 20,307,000 fully paid ordinary shares would be issued on the full conversion of that borrowing into equity. That issue represents approximately 4.9% of the ordinary shares on issue at 30 June 2012.

Assets pledged as security

The convertible debenture is secured by a fixed and floating charge over certain of the Company’s assets. The respective values of the assets pledged as security as at 30 June 2012 are as follows:

Fixed charge Cash and cash equivalents Floating charge Trade receivables and other assets ( excluding IP) Inventories	1,443,928
	527,346 214,400
	741,746

10

Note 9. Contributed equity and reserves

(a) Reserves Share-based payments reserve Movements: Balance 1 July 2011 Value attributable to options attaching to shares issued during the year Option expense Options issued to consultants and staff Balance 30 June 2012 (b) Accumulated losses Movements in accumulated losses were as follows: Balance 1 July 2011 Net loss for the year Balance 30 June 2012 (c ) Issued and Paid Up Capital 414,096,557 (2011: 325,714,800) ordinary shares fully paid Movements in ordinary share capital Date of Issue Shares on Issue at 1 July 2010 02/07/2010 Shares issued for cash 02/08/2010 Shares issued for cash 18/02/2011 Issued to consultants in lieu of fees Issued to Chief Executive Officer 13/05/2011 Shares and options issued for cash Value of options issued transferred to options reserve Issued to consultants in lieu of fees Shares issued to Directors in lieu of Directors fees Shares issued to staff 28/06/2011 Shares and options issued for cash Value of options issued transferred to options reserve Issued to consultant in lieu of fees Less costs associated with issuing shares Shares on issue at 30 June 2011	2012 $ 907,059
	595,207 171,009 140,843
	907,059
	(26,584,345) (2,297,520)
	(28,881,865)

11

25/08/2011 Issued for cash Value of options issued transferred to options reserve 8/11/2011 Issued for cash and offset against payables 30/11/2011 Issued to consultants in lieu of fees Value of options issued transferred to options reserve 27/04/2012 Issued for cash 8/06 2012 Issued for cash Value of options issued transferred to options reserve 18/06/2012 Issued for cash Share Purchase Plan 29/06/2012 Issued to consultant in lieu of fees Less costs associated with issuing shares Shares on issue at 30 June 2012	7,380,000 $0.07 7,613,663 $0.07 1,010,504 $0.069 30,725,000 $0.02 19,275,000 $0.02 22,102,500 $0.02 275,090 $0.027 414,096,557	516,600 (27,552) 532,957 70,000 (50,956) 614,500 385,500 (96,250) 442,050 7,417 (90,996)
		30,024,787

(d) Ordinary Shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amount paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(c) Options

Details of the options outstanding at 30 June 2012 are as follows:

Date options granted 18 February 2011 25 August 2011 8 November 2011 19 December 2011 8 June 2012 29 June 2012 29 June 2012	Number under option 750,000 2,460,000 2,752,230 4,000,000 12,500,000 579,736 1,186,729 24,228,695	Exercise price $ $0.0945 $0.10 $0.12 $0.07 $0.04 $0.0497 $0.048	Expiry date
			31 May 2013 31 August 2012 15 December 2013 30 June 2014 30 April 2015 30 November 2021 17 January 2022

(d) Convertible debenture

The Company has issued a convertible debenture to the value of AUD 960,522 (CAD1,000,000) as at 30 June 2012, which, at the option of the holder, can be converted into fully paid ordinary shares in the Company. Refer note 8 for details of the conversion price and the number of shares that would be issued as at 30 June 2012 if the conversion took place at that date.

Note 10. Earnings Per Share

Note 10. Earnings Per Share
	2012	2011
	Cents	Cents
(a) Basic earnings per share
Loss from continuing operations attributable to the ordinary equity holders of
the company	(0. 67)	(0.82)
Loss attributable to the ordinary equity holders of the company	(0.67)	(0.82)

12

(b) Diluted earnings per share Loss from continuing operations attributable to the ordinary equity holders of the company Loss attributable to the ordinary equity holders of the company (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share Loss from continuing operations Loss attributable to the ordinary equity holders of Immuron Limited in calculating basic earnings per share

(0.67) (0.82) (0.67) (0.82) 2012 $ 2011 $ (2,297,520) (2,595,179) (2,297,520) (2,595,179)

There are no reconciling items to the above two loss amounts in calculating the earnings per share.

(d) Weighted average number of shares used as the denominator

	2012	2011
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share from continuing operations	344,688,598	315,683,833
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share	344,688,598	315,683,833

(e) Information concerning the classification of securities

Options

Options that have been granted are considered to be potential ordinary shares, however their conversion to ordinary shares does not increase the loss per share, as such the options are not dilutive and have not been included in the determination of diluted earnings per share.

The options have not been included in the determination of basic earnings per share.

Note 11 Events occurring after balance sheet date

Subsequent to 30 June 2012 the following significant event occurred:

The Company issued 103,524.381 bonus options to all shareholders on 23 July 2012 under the terms of the prospectus dated 6 July 2012. The options expire on 30 April 2015 and are exercisable into ordinary shares in the company on the payment of $0.04 per share.

No funds were raised from the issue of the options.

Other Appendix 4E information

Annual Meeting

The date of the annual general meeting will be advised to members at a subsequent date.

Audit

This preliminary final report is based on unaudited accounts. The Audit Report will be made available with the Company’s annual financial report.

13